Energy Will Decarbonize, Deloitte Says, Even If Transport Lags

An electric car being charged at a charging station. Photo by Thomas Trutschel/Photothek via Getty Images

Electric utilities are banking on electric-vehicle charging to offset losses from customers who generate their own electricity at home. But the electrification of cars is lagging behind the decarbonization of energy.

"I think decarbonization is a long-term unstoppable trend which actually happens whether or not electric vehicles become the dominant form of transportation," Slaughter said Tuesday at Rice University's Baker Institute for Public Policy.

Though it pales compared to the year renewables had, 2017 was nonetheless the best year on record for electric vehicles, and Deloitte expects EVs to become increasingly dominant.

"We think that everything we’re talking about here points to a more dominant role for electric vehicles relative to the other alternatives. We’re not saying internal combustion vehicles go away, we’re not saying hydrogen fuel cells never get developed, because there’s probably not a winner-takes-all scenario in this," he said.

But costs of ownership are much lower with EVs, Slaughter said—"probably even now already offsetting the higher capital costs of entry to the electric vehicle"—and trends such as connectivity, autonomy, car sharing and demographics favor electrics.

"That tells me that electric vehicles will grow probably at a preferentially higher rate than any of the other technologies that are out there," he said.

This is good news for electric utilities, which could get a new source of electricity demand after years of flat demand. And according to Slaughter, utilities are well positioned to lead in rolling out charging infrastructure.

It could be bad news for oil companies. Slaughter predicts gasoline consumption will drop 30 percent "under a business-as-usual scenario," siphoning 3.5-4.5 million barrels per day out of U.S. gasoline sales.

That won't be fatal for oil companies, though, because of growth in petrochemicals and exports to countries that transition more slowly to a cleaner economy, he said. Oil companies could also grab a share of the EV charging market, Slaughter suggested, by adding charging options to their developed network of gas pumps—especially in rural areas where EV owners worry most about running out of juice.

But even if transportation fails to electrify as expected—and two economists who responded to Slaughter suggested that it may—the electric power sector will continue to decarbonize, Slaughter said.

Last year Deloitte released a study that found the improving economics of renewable energy are reinforced by enduring interest in sustainability among both residential and business customers of electric utilities. Deloitte expects that interest to intensify in coming years as millennials mature, giving utilities continuing motivation to decarbonize. That trend continues, Slaughter contends, regardless of what happens in the transportation sector.

"That decarbonization of the power-generation system is kind of happening independently of this."

Good thing, because economist Christopher Knittle of the Massachusetts Institute of Technology responded with a dimmer outlook for transportation.

"I have to warn you: I’m an economist, and economics is known as the dismal science, so I’m not going to be as optimistic as he is," Knittle said. "I’m going to sort of put a throttle on how quickly we think those changes may occur and how pervasive they may be in the future."

Knittle tried to find data to support three claims that are often made about forces motivating the transformation of transport:

Millennials don't want to own cars, want to live in cities and prefer car sharing. Knittle examined different data sets and found little or no reduction in car ownership or miles traveled among millennials. Their early reluctance to own cars could stem from economic conditions—the Great Recession—during their early adulthood, he added and could change as they age.

Electric vehicles have arrived. Although the cost of battery electric vehicles has dropped substantially in recent years, Knittle said, they are less poised to take over the transportation system than plug-in hybrids. Hybrids have a much smaller, lighter and cheaper battery, and they can charge it using their internal-combustion engine. So there's no range anxiety, no need for charging stations. And the batteries still have enough range—30 miles—to make 80 percent of trips electric. "I don't think we're going to pure electric vehicles anytime soon," he said. "What we're going to do is jump to plug-in hybrids."

Autonomous vehicles will reduce energy consumption. Autonomous vehicles promise a suite of energy benefits: less congestion, platooning, right-sizing, speed control. "There's all these benefits," Knittle said. "Counterbalancing that is it will get cheaper to drive and more convenient to drive. Now I can just send my little car over to pick up my son where I would have made him walk. Or I'm going to take a bunch of trips that I otherwise wouldn't have taken. So what autonomous vehicles do to energy consumption is a huge unknown."

Economist Antonio Bento of the University of Southern California endorsed Knittle's take:

"It is important to realize that when we make our decisions on the vehicle that we purchase and how much we use that vehicle, we typically ignore the consequences that our decisions impose on others.”

Watch "A Sector in Transition: Transportation in the 21st Century" at the Baker Institute: